Mobile chipset major Qualcomm has seen a strong 41% increase in its stock year-to-date, driven by several factors including signs of recovery in the smartphone market and optimism in generative AI trends. The company recently reported better-than-expected Q2 FY’24 results and provided guidance for Q3 that surpassed estimates, with revenue expected to be between $8.8 billion and $9.6 billion. Qualcomm’s CDMA Technologies segment is benefiting from the growth in smartphone shipments, with higher demand for high-end chipsets optimized for AI, particularly in China where local OEMs have increased their uptake by over 40% compared to last year. Additionally, Qualcomm’s chips are gaining traction in the PC market, with vendors incorporating AI features into new computers.
The global interest in generative artificial intelligence is also boosting Qualcomm’s business, with higher demand for chipsets like the Snapdragon 8 Gen 3 that are optimized for AI functions such as voice assistants and image generation. The company is seeing increased demand from China and the PC market, with Microsoft and other Windows PC players announcing new computers with AI features powered by Qualcomm’s processors. Qualcomm’s automotive business is also performing well, as semiconductor technology plays a bigger role in the transportation industry with trends such as electrification and autonomous driving gaining momentum. Qualcomm’s automotive revenues rose 35% year-over-year in Q2 FY’24, with the Snapdragon Digital Chassis solution having a design win pipeline of $45 billion.
The optimism surrounding artificial intelligence and Qualcomm’s automotive business has led to a 35% increase in the company’s stock from early January to around $205. However, Qualcomm’s stock performance has not been consistent, with returns of 20% in 2021, -40% in 2022, and 32% in 2023. In comparison to the S&P 500, Qualcomm underperformed in 2021 and 2022, but outperformed in 2023. Amid uncertainties in the macroeconomic environment and elevated interest rates, there are concerns about whether Qualcomm will continue to outperform the market or face a similar situation as in 2021 and 2022.
Qualcomm’s stock is currently trading at around $204 per share, with a consensus FY’24 earnings multiple of about 22x. While this multiple is not considered high, there are concerns about the company’s revenue growth potential this year and increasing competition in the mobile chipset space. For example, Huawei’s new smartphones will feature its own Kirin processors instead of Qualcomm’s, potentially impacting Qualcomm’s sales. There is also speculation that Samsung could favor its own Exynos line of chips over Qualcomm processors in its upcoming flagship devices. Trefis has a price estimate of $189 for Qualcomm, slightly below the current market price, based on factors driving the stock’s valuation.
Investors looking for market-beating portfolios may consider Trefis High Quality Portfolio, which has outperformed the S&P 500 each year over the past few years, providing better returns with less risk compared to the benchmark index. The performance metrics of the HQ Portfolio indicate a more stable growth pattern compared to Qualcomm’s stock. Given the uncertainties in the market, including interest rate changes, it remains to be seen whether Qualcomm will continue to outperform the market or face challenges in the coming months.
